Cleaning up coal not greenest option, but key for energy diversity

NRG Energy is outfitting its W.A. Parish power plant in Fort Bend County with new infrastructure to capture carbon dioxide from coal burned in one of the plant s generators instead of releasing it into the atmosphere. The new facility will pipe the greenhouse gas to an oil field for use underground in enhanced oil recovery.
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NRG Energy is outfitting its W.A. Parish power plant in Fort Bend County with new infrastructure to capture carbon dioxide from coal burned in one of the plant s generators instead of releasing it into the ... more

Photo: NRG Energy

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An artist's rendering depicts the new $1 billion carbon dioxide capture facility in front of the four existing towers at NRG's W.A. Parish power plant in Fort Bend County.

An artist's rendering depicts the new $1 billion carbon dioxide capture facility in front of the four existing towers at NRG's W.A. Parish power plant in Fort Bend County.

Photo: NRG Energy

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The W.A. Parish Power Plant in Fort Bend County, owned and operated by NRG Energy, has gotten modifications to reduce carbon emissions.﻿

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The W.A. Parish Power Plant in Fort Bend County, owned and operated by NRG Energy, has gotten modifications to reduce carbon emissions.﻿

Photo: Gary Fountain, Freelance

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Houston Chronicle columnist Chris Tomlinson.

Houston Chronicle columnist Chris Tomlinson.

Photo: Smiley N. Pool, Staff

Cleaning up coal not greenest option, but key for energy diversity

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Balancing economic feasibility, shareholder value, regulatory necessity and social responsibility is something that business leaders do every day.

Striking the right balance requires creativity and compromise, and no sector faces more challenges than electricity generation. If a power plant produces too much pollution, we suffer health consequences. If the cost is too high, we suffer economically. And it seems like everyone disagrees about the right balance between the two.

That's what makes NRG Energy's decision to spend $1 billion to capture carbon dioxide produced by one of the nation's largest coal-fired power plants so deeply fascinating, endlessly debatable and ultimately the right thing to do. It's a lesson in industrial economics, cost-benefit analysis and a tribute to the complex financial deal.

Known as Petra Nova, the 50-50 joint venture between NRG and Tokyo-based JX Nippon Oil & Gas Exploration Corp. plans to add a carbon capture system to an existing unit at the W.A. Parish Power Plant in Fort Bend County and pipe the gas 82 miles to mature oil fields where it can be pumped into the ground to force out the last remaining oil. If all goes as planned, 1.6 million tons of CO2 produced in Fort Bend County will be trapped underground in Jackson County, where oil production is expected to jump from 500 barrels per day to more than 15,000.

The project is important because while the carbon capture technology from Mitsubishi Heavy Industries is proven, naysayers have questioned its economics. The Department of Energy provided a $167 million grant to defray Petra Nova's costs to prove such a system can be profitable.

The business plan boils down to NRG and JX Nippon making enough money from the increased oil production to see a return on their investment in capturing carbon, while keeping some of the newest and cleanest coal-fired units operating.

"We are a fairly large emitter of CO2, and we need to manage those emissions," Petra Nova President and CEO Arun Banskota told me.

Critics say there are simpler and cheaper ways to prevent the release of carbon, such as replacing a coal-fired unit with a gas-fired one. Others complain that the increased oil production will ultimately negate the benefits of the capturing the carbon.

"These are some of the largest and newest coal units; they are operating at a very high efficiency factor," Banskota argued. "The idea of just shutting down a major investment like this, that is extremely compliant with existing rules, that's just not the right thing for our shareholders or the community at large who are relying on cheap, safe and reliable energy."

The project improves on the reality of our current energy use. Coal provides cheap energy, and NRG has the right to recoup the investment in its coal-powered generation fleet. There also is no current replacement fuel for oil, and if it's not recovered from existing fields with CO2 injection, oil companies will simply drill new wells elsewhere.

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Improving coal plants also keeps electricity prices stable. Today's price for natural gas, the main low-carbon alternative to coal, may be around $3.75 a million British thermal units, but it's been as high as $13 in 2005.

Last month, the consulting firm IHS warned against becoming too dependent on a single fuel. An IHS model using past commodity prices found that reduced diversity could cost consumers more than $93 billion per year in higher bills and produce price swings as high as 50 percent.

Analyzing the environmental and economic benefits of keeping the plant open versus closing it may be subjective, but less so is the question of whether Petra Nova makes commercial sense.

Banskota said creating a vertically integrated company from smokestack to oil field was the only way to make the project profitable. Finding a lender to finance such a complex, multi-industry project, though, was a challenge.

Alec Borisoff, a partner in the Tokyo office of the law firm Milbank, Tweed, Hadley & McCloy, helped seal the unique financing through the Japan Bank for International Cooperation and Mizuho Bank, and obtaining a guarantee from Nippon Export and Investment Insurance.

Obtaining the financing required an analysis of the carbon capture equipment, CO2 pipeline, oil production and the auxiliary power projects as one package.

"What made the financing hard - but what also made it special - was that it had never been done like this before," Borisoff said. "The lenders were looking at the totality of a complicated project with multiple components, where a new implementation of carbon capture technology was being financed on the back of revenues from enhanced oil production."

Because the deal was the first of its kind, NRG and JX Nippon benefited from Japan's government-financed export credit agencies, he added. If the project is successful, though, he said commercial lenders may be more willing to get involved in future projects.

Banskota said his company is already looking to match other coal plants with mature oil fields in need of CO2.

Petra Nova is not the greenest power project, but it doesn't need to be. It represents a practical solution to provide the power we need from diversified sources with a minimal level of pollution. This is the kind of innovation that reduces greenhouse gases without significant harm to our economy and at no risk to the electricity consumer.